Key Takeaways

The past twelve months have been among the most turbulent in modern trade history. For Malaysian manufacturers, importers, and exporters, the US-China trade war has evolved from a distant geopolitical dispute into a daily operational reality. Tariff rates have swung wildly, trade deals have been signed and struck down, and new investigations threaten to restart the cycle all over again.

If your business ships goods to or from the United States, or if your supply chain touches Chinese components, this article is your comprehensive guide to where things stand in April 2026 and what you should be doing about it.

The Timeline: From Liberation Day to the Supreme Court

April 2, 2025: "Liberation Day" and the Reciprocal Tariffs

On April 2, 2025, President Trump signed an executive order imposing sweeping "reciprocal" tariffs under the International Emergency Economic Powers Act (IEEPA). The order established a 10% baseline tariff on all imports entering the United States, with higher country-specific rates calculated based on what the administration characterised as each country's effective tariff on American goods.

Malaysia was hit with a 24% reciprocal tariff rate. The White House justified this by claiming Malaysia imposes an effective 47% tariff on US goods. In reality, Malaysia's trade-weighted Most Favoured Nation (MFN) tariff rate is approximately 5.6%, and many goods enter under preferential arrangements at even lower rates. The 47% figure appeared to be derived from the bilateral trade deficit rather than any actual tariff schedule, a methodology that economists across the political spectrum criticised as fundamentally flawed.

The impact was immediate. Malaysian electronics exporters, who ship billions of ringgit worth of semiconductors, integrated circuits, and electrical components to American buyers, saw their cost competitiveness erode overnight. Furniture manufacturers in Muar, palm oil refiners in Johor, and rubber glove producers across the country all faced the same question: absorb the cost, pass it on, or lose the customer.

October 2025: The US-Malaysia Trade Agreement

Following months of intense diplomatic engagement led by Trade Minister Tengku Zafrul Aziz and senior MITI officials, Malaysia secured a bilateral agreement with the United States in October 2025. The deal reduced Malaysia's reciprocal tariff rate from 24% to 19%, with specific exemptions carved out for several strategically important sectors:

While the reduction from 24% to 19% was welcome, it still represented a significant cost increase for most exporters. The electronics and electrical (E&E) sector, which accounts for roughly 40% of Malaysia's total exports, received no exemption. Neither did machinery, plastics, or processed food manufacturers.

February 20, 2026: The Supreme Court Strikes Down Reciprocal Tariffs

In a landmark ruling on February 20, 2026, the US Supreme Court held that the IEEPA cannot be used as the legal authority for imposing tariffs. The court found that the reciprocal tariff programme exceeded the scope of emergency economic powers and encroached on Congress's constitutional authority over trade and taxation.

The ruling effectively struck down the entire reciprocal tariff framework, including Malaysia's 19% rate. However, the 10% baseline tariff remains in force, as the administration had separately grounded it under different statutory authority (Section 301 of the Trade Act of 1974 and general presidential trade powers).

"The Agreement on Reciprocal Trade is no longer in force. Malaysia will engage constructively with the United States on the basis of existing WTO commitments and bilateral frameworks."

— Trade Minister Johari Abdul Ghani, February 2026

For Malaysian exporters, the Supreme Court decision was a partial victory. A 10% tariff is far more manageable than 19% or 24%. But the relief may be temporary.

March 11, 2026: Section 301 Investigations

Less than three weeks after the Supreme Court ruling, the Office of the United States Trade Representative (USTR) launched Section 301 investigations into Malaysia and 15 other countries. The stated basis: "structural excess capacity" in manufacturing sectors that allegedly harm American industry.

Section 301 is the same legal authority used to impose tariffs on China beginning in 2018. Unlike the IEEPA-based reciprocal tariffs, Section 301 tariffs have been upheld by US courts and can be imposed without the emergency powers framework the Supreme Court rejected. The investigation covers a broad range of sectors, including:

Section 301 investigations typically take 6 to 12 months. If the USTR finds that Malaysia's trade practices are "unreasonable or discriminatory," it can impose targeted tariffs potentially exceeding the 10% baseline. For Malaysian manufacturers in the affected sectors, this means the tariff threat is far from over.

How the Trade War Is Reshaping Malaysia's Logistics Landscape

The China Plus One Windfall

Paradoxically, the same trade war that threatens Malaysian exporters has also created significant opportunities. As multinational corporations seek to diversify manufacturing away from China to reduce tariff exposure, Malaysia has emerged as one of the primary beneficiaries of the China Plus One strategy.

The numbers are striking. Malaysia's approved foreign direct investment (FDI) surged 383.4% year-on-year in the most recent reporting period, driven primarily by Chinese, Taiwanese, and South Korean manufacturers establishing production facilities in Penang, Selangor, and Johor. Container throughput at Port Klang and other Malaysian ports is up 17% year-on-year, reflecting the increased volume of raw materials flowing in and finished goods flowing out.

For logistics operators in Port Klang, this has meant a significant increase in demand for warehousing, haulage, and freight forwarding services. But it has also introduced new complexities, particularly around rules of origin and transshipment compliance.

Enhanced US Customs Enforcement and Transshipment Risk

The surge of Chinese investment into Malaysia has not gone unnoticed in Washington. US Customs and Border Protection (CBP) has expanded inspections of shipments originating from Malaysia, particularly in sectors where China faces high tariff rates. The concern: goods manufactured in China are being routed through Malaysia with minimal processing to circumvent tariffs, a practice known as transshipment or tariff evasion.

CBP has deployed additional staff and data analytics tools to identify suspicious patterns, including:

The penalties for transshipment violations are severe. US importers can face retroactive duty assessments, seizure of goods, and civil or criminal penalties. Malaysian exporters found to be facilitating transshipment risk being blacklisted by CBP, which would effectively shut them out of the US market.

Industries Under Pressure

The tariff environment affects different Malaysian industries in different ways. Here is a sector-by-sector breakdown of the current situation:

Electronics and Electrical (E&E)

Malaysia's largest export sector remains subject to the 10% baseline tariff, with potential Section 301 tariffs on the horizon. E&E manufacturers in Penang and Kulim are accelerating efforts to demonstrate substantial transformation and local value-add to protect their country-of-origin status. Companies that can document a clear manufacturing process in Malaysia, rather than simple assembly of Chinese components, are better positioned to withstand CBP scrutiny.

Palm Oil and Rubber

Both sectors secured exemptions under the October 2025 deal. With the reciprocal tariff framework struck down, these products currently face only the 10% baseline. However, palm oil exporters should monitor the Section 301 investigation closely, as "structural excess capacity" arguments could potentially be applied to commodity exports.

Furniture

Muar-based furniture manufacturers have been both beneficiaries and victims of the trade war. Many gained market share when Chinese furniture faced steep tariffs, but the 10% baseline tariff on Malaysian goods still cuts into margins. Manufacturers with strong US relationships and established supply chains are weathering the storm better than newer entrants.

Machinery, Plastics, and Industrial Goods

These sectors face the 10% baseline with no exemptions. For machinery exporters, the tariff is often absorbed by the buyer because switching costs are high and lead times are long. For plastics and commodity industrial goods, the tariff has squeezed margins and some Malaysian exporters have lost orders to competitors in countries with lower effective tariff rates.

Practical Strategies for Malaysian Businesses

The tariff environment is volatile, but it is not unmanageable. Here are concrete steps that Malaysian importers and exporters should be taking right now:

1. Audit Your HS Code Classifications

Incorrect or suboptimal Harmonized System (HS) code classifications can mean the difference between a 0% and a 25% tariff rate. Many businesses have been using the same HS codes for years without reviewing whether a more accurate or favourable classification exists. Work with your forwarding agent to review every product line and ensure your HS codes are both accurate and optimised.

2. Strengthen Your Rules of Origin Documentation

With CBP intensifying transshipment inspections, robust rules of origin documentation is no longer optional. If your products contain Chinese components, you need to demonstrate that substantial transformation occurs in Malaysia. This means maintaining detailed production records, bill of materials documentation, and manufacturing process descriptions that prove your goods legitimately originate in Malaysia.

3. Diversify Your Export Markets

The US remains an important market, but overreliance on any single destination is risky in the current environment. Malaysian exporters should actively explore opportunities in ASEAN, the EU, the Middle East, and other markets where Malaysia has preferential trade agreements. RCEP and CPTPP provide tariff-free or reduced-tariff access to many countries that can partially offset US market uncertainty.

4. Review Your Supply Chain for Transshipment Exposure

If your supply chain involves Chinese raw materials or components, conduct a thorough review to ensure you are not inadvertently creating transshipment risk. This is particularly important for companies operating in free trade zones or licensed manufacturing warehouses. Ensure your value-added processes are well-documented and meet the substantial transformation threshold.

5. Stay Current on Section 301 Developments

The Section 301 investigation launched in March 2026 could result in new tariffs within 6 to 12 months. Malaysian businesses in the targeted sectors should monitor USTR announcements, participate in public comment periods when they open, and engage with industry associations like FMM and MATRADE to coordinate responses.

6. Build Tariff Costs into Your Pricing Strategy

Stop treating tariffs as a temporary disruption. The 10% baseline tariff is likely here to stay, and additional tariffs may come. Build these costs into your pricing models, negotiate cost-sharing arrangements with your US buyers, and explore duty drawback programmes that may allow you to recover tariffs on goods that are re-exported.

How DNE Forwarding Helps You Navigate the Tariff Storm

In an environment where a single HS code error or a missing certificate of origin can cost your business tens of thousands of ringgit, having the right forwarding agent is not a luxury. It is a necessity.

DNE Forwarding has been handling freight forwarding, customs clearance, and haulage out of Port Klang for over two decades. Here is how we help our clients navigate the current tariff environment:

The trade war is not going away. But with the right preparation, the right documentation, and the right forwarding agent, Malaysian businesses can continue to compete and win in global markets, even in the middle of the storm.